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Meals Subject to 50% Not So De Minimis

Meals Subject to 50% Not So De Minimis

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On June 26, 2017, the Tax Court ruled that the Boston Bruins, a National Hockey League (NHL) franchise, were entitled to deduct 100% of the cost incurred to provide meals to team members and personnel while traveling to other cities for games.

In reaching its conclusion, the court determined that the meals qualified as a de minimis fringe benefit and therefore the costs are not subject to the 50% limitation under IRC Section 274(n)(1). This could be a boon to the sports and entertainment industry since to this point in time, these meals have generally been treated as subject to the limitation.

The Bruins, as a member of the NHL, are required to follow the Collective Bargaining Agreement (CBA) between teams and the players. The CBA stipulates that for away games it is required for teams to arrive in away cities at least six hours before the start of the game. It is also required that an NHL team travel to an away city the day before game day if the flight to the away city is greater than 150 minutes. The Bruins, fulfilling their requirements, would travel with various personnel consisting of 20-24 players, the head coach, assistant coaches, medical personnel, athletic trainers, equipment managers, communications personnel, travel logistics managers, public relations/media personnel, and other traveling hockey employees. The Bruins would make hotel arrangements in advance upon learning of the NHL schedule for the upcoming season. The contract with the hotels had specific provisions regarding the operation of dining rooms and preparation and service of the food. These pregame meals are designed to help the players achieve optimal athletic performance. These meals are mandatory for all players to attend and are open for all members of the staff travelling with the team.

Code Section 274 deals with the disallowance of certain entertainment expenses.  As stated above, Section 274(n)(1) limits the amount of meal and entertainment expenses allowed as a deduction to 50% of their cost. There is an exception to the rule which falls under Section 274(n)(2)(B), which allows a full deduction if the expense qualifies as a de minimis fringe benefit under Section 132. In order to qualify as a de minimis fringe benefit, the operation by an employer of any eating facility for employees must not discriminate in favor of highly compensated employees. In this case, the pregame meals were open to all staff of the Bruins; thus, the operation of the facility was not discriminatory.

In addition, regulations define an employer-operated eating facilities for employees as a facility that is operated by the employer and the meals furnished are provided during, or immediately before or after, the employee’s workday. Furthermore, regulations state that the value of meals furnished to an employee by his employer shall only be excluded from the employee’s gross income if two tests are met: (i) The meals are furnished on the business premises of the employer, and (ii) the meals are furnished for the convenience of the employer.

The court held that under the regulations, the Bruins’ contract with a hotel constituted the operation of an eating facility for its employees, satisfying the first regulatory requirement. Next, the Bruins had to prove that the facility was a business premise of the employer and the meals were for the convenience of the employer. The IRS argued that since the Bruins were not in their own facility, these meals were not furnished on their business premise.

However, as stated above in the CBA, the Bruins are required to travel at least one day before the day of a game and therefore the hotels were an extension of the business premise. Under the convenience of the employer rule, it was established that these meals were provided to the hockey employees for business reasons. First, the meals were provided to meet the nutritional needs for the professional athletes in order for them to achieve optimal athletic performance.

Secondly, due to limited time before a game, the meals provide organized productive time that would ordinarily be lost if the players and staff were not assembled together. It is for these reasons that the meals were concluded to have been for a legitimate business purpose. As a result, the tax court ruled in favor of the Boston Bruins and allowed a full tax deduction of the meals.

The case may yield benefits beyond the athletic world. Performers such as singers and actors who travel for their business—doing concert tours or new film promotions, for example—could also benefit from the court’s decision.


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